Blog

Summary

US Stock Market: With the takeout of the left shoulder on SPX and the bull flag breakout on NDX, we are a plan for new highs and though I don’t want to become a robo-top caller, well, a potential top amid blow-off mania spirits (MOMO, FOMO).

US Market Sentiment: Structurally over-bullish, as has been the case. Last week short-term sentiment jammed bullish as well. Still room to build more FOMO, but market sentiment is unhealthy contrary-wise.

Global Stock Markets: Still generally trending down vs. US market, as the headwind USD is still in breakout mode. If USD fails its support test (see below), Global can play some catch-up. Keeping an eye on China/Asia/EM, and Canada’s TSX-V in that regard.

Precious Metals: Gold broke out of its Symmetrical Triangle and above resistance. Hence, the long-standing target of 3000+ is loaded. Silver broke above wedge (handle, bull flag) top and the 50 day average, nesting atop those markers currently. As long as it continues to do that or better, we are targeting 42. GDX needs to clear 38.72 and hold it to officially break the correction. If so, using HUI the next target is 375+ (current price: 305.86). See Friday’s update on GDX and Tuesday’s update on Silver and Gold.

Commodities: Commodities popped and flagged. Still awaiting USD breakdown or support hold for green or yellow/red light. Let’s keep an eye on the Canadian TSX-V, which is postured to break out. Postured is not broken out, but if USD drops and the ‘V’ pops it’ll be looking good.

Bonds: Treasury yields pulled back last week with the “just right” Goldilocks signals on inflation, as noted last week. Further pullback will need to happen to weaken the US dollar and allow wider participation by more global and commodity/resources markets.

US Dollar Index: Dropped to a test of base breakout support, currently in progress. Trump wants a weak dollar and speculators the world over also want a weak dollar. If USD and the Gold/Silver ratio go in the same direction together, we’ll have a good indication to go on the OTHER direction, investment/trading wise.

Indicators:

• Gold/Silver ratio had not been confirming USD when it was bulling and now it is not confirming it when it is pulling back. In other words, the GSR is still perched in a bullish look.
• Yield curves are clearly steepening and should resolve badly for markets in time. This week we add detail about inflationary vs. deflationary steepeners (see next segment).
• Fed liquidity draining, while stonks continue upward. Bad combination…
• …unless somehow the fiscal side (Trump/government) manage to shove enough stimulus through. That job would clearly be more difficult if Treasury yields remain highly elevated.
• A dangerous correlation to 2007 remains in play in the bond market. See next segment.
• VIX: asleep. High Yield spreads: asleep. Other non-forward looking indicators: asleep. One day, it’ll be “wakey wakey little indicators”… but not today. Not yet.

Stock Market Decision Point Answered, NFTRH Plan Unchanged

The question was “will SPX decline from a small bear pattern with a measured target for a healthy correction to the uptrending 200 day moving average, or will it take out the pattern’s right shoulder and negate a short-term bearish outcome?”

SPX did that second thing… and NDX broke out of its “bull flag” (short-term downtrend channel), and the SOX index ticked a new 6 month high before dropping for an in-progress test of a base breakout on Friday.

Many people may think “okay, the US stock market chose the BULLISH option”, but I see it differently. A hard decline to the daily SMA 200 for a test of the major uptrend would have been “healthy”, as we noted when first considering it. It would have injected some pain in the short-term for likely gain in the longer-term. In fact, when thinking about this potential I was also thinking that I may have to abandon the current NFTRH plan for a 2025 bear market. That is because such a decline would have cleared the sentiment FOMO, MOMO excesses.

Instead, if the market’s choice last week (breaking upward with SPX ticking a new high and NDX taking out the bull flag) plays out as expected, we are on one of our preferred options, which was for a perhaps final drive upward to suck ’em all in to the delight of those with a contrarian (but patient) viewpoint. See >>>

Contrarian Pivot (Jan. 19) and as a bid of a side show, Contrarian Investing With Jim Cramer (Jan. 23).

Indeed, Dumb Money is eating this stock market recovery just as would be expected, while Smart Money fades it. Risk indications are also climbing again, per Sentimentrader’s short and medium-term data.

Gold bugs are not free of sentiment excess risk either as gold is leading the joyous sentiment parade. This my friends is another indication that when the broad bull tops the precious metals will probably be vulnerable as well. At such time it will feel so damn bullish and the usual pom-pom waving suspects will be imploring upon us as to WHY it is so bullish. I would recommend filtering that at such time.

NAAIM (Investment Managers) jumped from 70% to 86% bullish in a week.

Investors Intelligence (Newsletter writers) remained chastened as their sentiment profile had previously plunged from a Bull/Bear ratio near 4 to 1.32, barely ticking up last week to 1.48. We have long noted that the newsletter boyz ‘n girlz tend to be more sticky in their sentiment moves than Smart/Dumb indications, NAAIM or AAII. At this time, their moderate over-bearishness still indicates a positive short-term sentiment backdrop and stock market tailwind.

AAII (Ma & Pa) spiked upward in sentiment from a Bull/Bear ratio of .6 to 1.48 last week. This is only mildly over-bullish, but the spike is indicative of developing MOMO/FOMO (momentum and fear of missing out).

Market sentiment is in alignment with our view of new short-term highs to come in the stock market, but also with our view that an unhealthy sentiment/psychology backdrop is regenerating to the degree that could stop the bull in its tracks. This is a bull market that is sure that Trump’s pro- business, pro-economy measures will make everything okay. I don’t think it will.

I do think we have an opportunity to play bullish along with the herds in the short-term, but a better opportunity to side step the pain to come after this blows out… assuming markets accelerate upward into whatever top is to come.

For what it is worth (and often it’s not worth a lot), the average S&P 500 seasonal pattern finishes strong in January into February, and then declines. Might we think about continued bull into mid-February and then increasing risk management further? We might.

Bond Market Indications

I am actually surprised by the high pedigree of analysts that I hear talking about how “the recession signal” of the yield curve inversions are behind us now that the curves are un-inverted and steepening. They either do not have the strength of will to project negative things in the face of Trump’s pro-business stimulative fiscal policies, or they simply ignore history.

The true history of post-inversion yield curve steepeners is a bearish history.

Some additional perspective on the above…

• The two steepeners that coincided with bear markets in 2000 and 2007 were “bull steepeners”. In other words, the curves rose while nominal bonds also rose and yields declined. In still other words, they were predominantly deflationary steepeners (with lesser bouts of inflation interspersed).
• The 2020 market mini-crash was a deflationary event as yield curves first steepened under deflationary pressure (nominal yields tanking) and then primarily under inflationary pressure (yields rising). But the greater trend in yield curves was still flattening and thus, indicative of the “boom” side of the boom/bust continuum. That is exactly what played out and a big part of why we noted at the time that the 2022 correction was not a bear market.
• As long as inflation (which was manufactured by the joint efforts of Fed monetary and Government fiscal policy to rescue the economy in 2020) is working to support the economy a curve steepener need not be destructive to the degrees of 2000 and 2007. What we have right now are inflationary steepeners as nominal yields rise in response to coming inflationary fiscal policies.
• A continued rise in nominal yields would be inflationary signaling. The question would be in how high interest rates would have to go before becoming heavily corrosive to the economy, potentially bringing on a “bust” or at least a significantly weakened economy.
• A top and decline in yields could first be interpreted as “Goldilocks” disinflationary as speculative players tend to look for anything they can use for a bullish MOMO attitude. But a continued steepening in yield curves that have morphed deflationary (nominal yields declining) would eventually signal a “bust”, much like what happened in 2000 and 2007.

Hence, the direction of nominal bonds/yields will be important in informing the nature and effect of yield curves, and by extension the boom/bust seesaw. As we see here, the long bond’s yield continues to be in upside flag breakout mode, signaling an inflationary macro.

As has been the case for the multi-years I’ve owned them, short-term Treasury bonds are recommended over longer-term bonds. Whereas the yield above signifies bearish long-term bonds, the total return of the 1-3yr Treasury ETF is just fine as a safer store of cash equivalent reserves. I hold SHY, SHV and some short-term bonds direct from Treasury with no wish to speculate on long-term bonds.

However… at this time everybody knows that Trump’s policies are inflationary. Everybody knows he wants to weaken the US dollar as part of fiscal policy. Everybody knows that the economy will be stimulated.

What they don’t know is that an economy pumped to the hilt, first under Trump 1 with Q1, 2020’s fiscal and monetary policy panic, then routinely under Biden, may simply have had enough. Two options…

1. The recent up-surge in Treasury yields is in response to what has not yet happened; inflationary Trump policies involving debt increases, tax cuts and tariffs, and is a false signal prior to yield curve steepeners shifting to deflationary (nominal yields top out and decline). Or…
2. The up-surge in nominal yields is just a precursor to higher yields still, and a von Mises style “Crack-up Boom”, where more debt is piled onto the inferno of an inflation-stoked economy until an inflationary bust takes the whole thing down at a later time. This option could see the broad bull continue for longer, but would be more long-term detrimental in that policymakers would have their hands tied due to chronically rising interest rates.

In my opinion, long-term optimists and bulls had better hope that there is an interim deflationary event (option 1) because if option 2 takes place, it likely ends the system as we know it after the asset market party ends.

Down the Rabbit Hole; the Age of Inflation onDemand

Let’s take a look at the 30yr Treasury yield Continuum from another angle by way of a chart I just found in my list that we used back in those critical days of early 2020 in gauging the coming inflationary recovery (and future inflation problem). I’ve marked it up further today in an effort to tell a story.

My general view of this story is that what people call the “Everything bubble” is actually a long-term bubble in monetary policymaking (you can always count on government from either side of the aisle to auto-stimulate through fiscal policies) that has been periodically interrupted by bubble bursts, liquidity events and inflationary recoveries as our policy heroes swing into action. This continuum of invasive policy is ongoing, but in 2022, after the latest and most extreme policy kick-save ever, the bond market rebelled, and today the trend is gone. Poof!

Now we are left to try to define what comes next after the end of an incredibly consistent and definable trend ended for this macro view.

• Alan Greenspan kicked off the age of Inflation onDemand back in the relatively innocent days of 2001-2004. This represented the start of a multi-decade phase of ever more intense, chronic and intrusive monetary policy in response to any and all market liquidity crises. Ole’ Greenie laid the groundwork and Bernanke put it on steroids.
• Aside from the obvious effects of this policy (halting bear markets, resuscitating the economy, manufacturing inflation) the very acts of printing money and spending from an ever-growing bag of debt has created the ongoing and intensifying disparity between the haves (asset owners, who’ve seen their assets chronically rise due to inflation) and have-nots, who are not part of the investment class and whose paychecks have not nearly kept up with the macro parlor trick known as inflation, which has been inflicted upon society as a matter of… POLICY!
• Among other things, this dynamic – in my strong opinion – created the environment in which most recently the old party was thrown out, and the Trump party was given its mandates. I will guess that in 4 years, after the coming inflation and/or economic bust, the reverse may happen.
• With the Continuum of long-term yields having busted its trend to the upside the setup is for Trump/Powell 2 to be more intense and rancorous than Trump/Powell 1, which was pretty damn rancorous (recall Trump’s robo-tweeting, berating the Fed chief for not dropping the Funds Rate, despite the Continuum’s then in-progress rise to the red EMA trend limiters). We noted at the time that Powell’s Fed was going to do the bond market’s bidding, not Trump’s.
• Powell held his ground until the economy and inflation signals began to ease, when he began cutting rates, a regime that ended with a deflation scare and inflationary response for the ages, in Q1, 2020, compliments of this jerk called the Corona Virus:

• Today the bond market is different. Captain Obvious wants you to know that. And it is not different in a pro-Trump way. If anything, Powell will – barring a complete capitulation to the will of the orange man – doggedly respect bond market signals.
• Hence, an economic downturn and market liquidation is almost necessary, if markets and the economy are to continue with a semblance of “business as usual”.

However, Trump 2 is presenting as a force of nature compared to Trump 1. If this is all presentation and bluster with no real force behind him, Trump will probably have to sit back and eat the Fed’s decision to independently manage markets monetary policy-wise. However, Trump has a thing in his pocket called fiscal (i.e. governmental, political) stimulative policy, along with a mandate to use it however he, and the houses of Congress he puppeteers, see fit.

In other words, the Fed could be marginalized in this scenario, leaving our economic fate to a real estate developer used to getting what he wants and used to using credit/debt to get it.

It is shaping up as an epic struggle (in my opinion) between the bond market (and by extension, the Fed) and government. Most administrations, including Trump 1, eventually wilt before the great and power Fed of Oz. But Trump 2? Is he bluster or is he a force of nature? Real or Memorex?

These are questions we need to take seriously, anticipate correctly and therefore, strategize by. 2025 may not be as simple as a contrarian bear play, although that is still my favored view. von Mises wants us to know that there is another option as well.

For those who want straight TA and straight answers, please pardon my detour above. But it is how I operate. I cannot in good conscience just issue prognostications without doing and showing the work behind it. The summary of the above is that I have not yet decided for myself which way I firmly believe the 2025 macro will go.

I have a favored plan, per the “contrarian” links near the beginning of the report. But we must be looking at as many viable possibilities as we can so that we do not operate in a vacuum of bias. I will be right or I will be wrong about the anticipated nearer-term contrarian market liquidation plan, that would come after a perhaps final drive upward in markets.

The alternative is an inflationary “crack up” that becomes ever more intense, with an absolute bull (in a China shop) at the helm of the economy. In that event, things could appear bullish for longer, but also capital would be in flight, probably aiming for real assets relative to paper (stocks, currency, etc.). It’s a world of increasingly divisive geopolitics and a big time “grab” for these things could be in play.

Maybe a fitting and climactic end to the age of Inflation onDemand, after all.

Precious Metals

A couple of updates from last week were linked in the Summary segment. Gold is broken out of its Symmetrical Triangle and now targeting 3000+. Silver is nesting atop its wedge/handle/bull flag breakout and its SMA 50. Barring a failure, it is now targeting 42. The miners need to take out the December highs (GDX 38.72 and HUI 318.14) in order to load HUI 375+.

Gold (2770) is within a whisker of its all-time high (2790), yet it is anything but a bubble, price-wise or especially value-wise. Gold is not about price. It is about the value it offers as a stable monetary asset amid instability, over decades.

Yet, we have noted that gold and the miners have been card carrying members of the broad 2024 rally, into 2025. So the prices of these and silver will probably be vulnerable whenever said broad rally terminates. It’s just a balance thing.

Gold has more or less kept pace with SPX since 2022. But its longer-term base indicates that it is truly a safe haven without bubble dynamics involved. Indeed, the multi-decade bubble in policy has served to impair gold relative to stocks ever since Ben Bernanke went steroidal with inflationary monetary policy. A coincidence that Gold/SPX stabilized during the same year that the 30yr yield Continuum broke out? Probably not. The bond market is attending to inflation. Gold is not primarily an inflation instrument.

Moving on, let’s make the rest of the report more normal, backing away from the macro rabbit hole stuff. Gold has been solid in relation to inflation signals and gold stocks have been picking up on that, with HUI bouncing as well. This is normal and good.

HUI/Gold and HUI/SPX ratios are in bounce mode within downtrends. But we have noted that there does not need to be any extended positive divergence by HUI in order for the sector to bottom. Just last February-March the ratios ‘V’ bottomed and rammed upward. Bulls do, however, want to see the current bounces continue and eventually turn the trends back up.

Might the Gold Miners Bullish Percent index have bottomed out at 38%, above our target of 30? Sure might have. It’s a bull trend, after all.

Gold’s ratios to other markets continue to be constructive. This weekly chart gives a bigger picture view and it shows Gold/Commodities firmly trending up in what is disinflationary, counter-cyclical signaling. But it is not yet “deflation scare” crisis. It is being interpreted by bubble heads far and wide as “Goldilocks”… ah, just right! I continue to see the S&P 500 as the “last man standing” in the way of a solid counter-cyclical, possibly deflationary view.

Commodities

Okay, we’ve got to wrap ‘er up soon. The nerd tends to get carried away with the macro stuff.

• Commodity indexes/ETFs: CRB index has taken out its previous high and thus broken up and out from its corrective base. Wow! However… GNX and the DBC ETF remain below their breakout points, as does crude oil, which drives them. So as usual, it’s a matter of Commodity Whack-a-Mole, depending on which commodities are popping up and which are getting smacked down.
• We will continue to watch this broad segment because if the US dollar should weaken appreciably, the commodity complex could put on a more pervasive breakout. This may depend on Trump 2 bringing on an inflationary “crack up” as opposed to our currently favored view of a contrarian deflationary view.
• Copper and Industrial Metals are neutral to constructive. Copper miners are bearish lately, and if we go deflationary they’ll bust further bearish. But if we crack up? Copper miners like FCX and the sector as a whole (COPX) are at clear long-term support. On watch, if we start to crack up.
• Uranium stocks (URNM) had a big bounce within a downtrend. So, though I hold it I am not overly optimistic just yet. The price of u3o8 is still well elevated in the 72s, but has been in a downtrend from the high just over 100 for a year now. Patience is probably wise here.
• WTI Oil is still trending down (despite a hard recent bounce) and Gas is still rallying, although it got cracked hard last week. I’ll probably need to decide whether or not to take a profit on AR (and other Energy positions, CVX and XOM for that matter).
• PGMs see Palladium in a would-be bottom and base that is taking a long time and Platinum in one that is taking even longer. Pd fell much harder than Pt to begin with. No current interest, but usually on watch in the event I find reason for interest.
• Rare Earths ETF REMX is trending down, but my interest is (and for a long while has been) in US based MP Materials, for its domestic production and increasing processing of REE. A potential Trump trade if I’ve ever seen one. Here we reference the potential for a global “resources grab” in an inflationary macro, noted above.
• Other riff raff like Nickel and especially Lithium got clobbered, I assume because Trump said “Drill baby, drill” which the market interpreted as “OMG, EV is dead!” Silly market. I don’t drive EV and have no plans to, but I don’t think Trump’s traditional energy plans will have much effect on the industry.

USD & Global Markets

Folks, when USD and the Gold/Silver ratio back off their bullish/constructive stance, I will back off my contrarian bear/market liquidation theme. But not until. USD is testing the daily SMA 50 and its base breakout while the GSR is poised to bull (which is different from “will bull”).

Hence the global stock market ETF (ex-US) is rallying with the broad markets…

…but in SPX (SPY) terms it is purely trending down. The positive RSI and uptrending MACD may argue that this will soon change. If so, it would probably indicate that the USD will have failed or will fail imminently. But as yet, no such signal. Tom Petty, the renowned market lyricist: “The way… a-ting is the hardest part”

Portfolio

Gold is long-term risk management & monetary value/stability in a balanced portfolio.

Taxable Account

In order of position size.

Mainly cash/equiv, accepting monthly income. Equities are a fairly diverse mix of items. Account is still biding its time. I am having some patience due to the US market’s break upward, increasing the odds of a new up-surge.

Trading Account

No positions.

Roth IRA (non-taxable, no contributions)

The IRA’s chart continues to enthrall this man who… well, you know. I want the upside breakout implied by the Symmetrical Triangle, but I will accept and adjust to, a breakdown if that is in the offing.

Cash/Equiv. is 84%, as it was last week. Just waiting, baby. I do not give answers I do not have. But I do keep plenty of patience and perspective in order to be fully intact when the time comes to give answers. It’s coming.

Cash & income-paying Equivalents are at levels that are right for me and my real-world situation. Your situation is different. Cash will be adjusted as needed.

Refer to the Trade Log under the NFTRH Premium menu at nftrh.com for trade info, if interested (not that you necessarily should be). Also, you can follow on X @NFTRHgt for notice of updates.

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Notes From the Rabbit Hole (NFTRH) is a weekly market report in which we provide analysis on financial markets.  We make every effort to provide accurate and high quality content, but this analysis ultimately represents our opinions and these opinions are provided without warranty or guarantee of any kind.  See full terms & conditions of service under the ‘About’ heading in the main menu.